Monday, January 10, 2011

Flash floods hit Australia's 3rd biggest city

SYDNEY: Residents of low-lying parts of Australia's third largest city, Brisbane, sandbagged their homes against rising waters on Monday as torrential rain exacerbated record floods that have paralyzed the coal industry in the northeast and now threaten tourism.

Prime Minister Julia Gillard insisted the cost of the floods would not delay a return to budget surplus in 2012-13, but J.P. Morgan predicted the disaster would crimp growth this year and could delay another increase in interest rates.

"People need to think about how to get out and if you don't need to travel, stay off the roads," said Police Chief Superintendent Alistair Dawson.

The worst floods in 50 years, affecting an area the size of France and Germany combined, began last month and have severely cut Queensland's $20 billion coking coal export industry, starving Asian steel mills of coal and pushing up world prices.

The floods have caused an estimated A$6 billion ($6 billion) in damage and economists say they will cut Australia's economic growth in 2011 and heighten inflation as food prices rise and reconstruction gets under way in the nation's second largest state.

"With more rain falling it could be months before the floodwaters clear and the extent of the damage to essential infrastructure is known," said J.P. Morgan's chief economist Stephen Walters.

J.P. Morgan on Monday cut its GDP growth forecast for 2011 to 3.3 percent from 3.7 percent, raised its inflation forecast to 3.8 percent from 3.2 percent, and pushed out the likely timing for the next interest rate hike to May from February.

Gillard announced more flood aid on Monday, but added the floods would not derail an expected return to a budget surplus in 2012-13.

"From the start of November we have seen extreme weather events in many parts of the country. The flood crisis is still emerging, so we don't know how many communities will be impacted by these floods," Gillard told a news conference in Canberra.

But Gillard added: "The Budget will return to surplus in 2012-13. That will require us to make some hard choices, and we will make those hard choices."